Turmoil of the last year may have subsided for agencies, but the stakes couldn’t be higher.
Make the wrong calls this year and agency CEOs could deepen their reliance on a business model where billing out FTEs trumps what would be value-creating innovation for advertisers. Downturns aren’t known for fostering agency innovation. Not when agency bosses know all too well that the perennial pressure from client-side procurement teams to screw down the fees they’re willing to pay for agency services becomes even more acute.
On this basis, it would be tempting to think the worst for agencies trying to contort their way through this downturn that’s-not-quite-a-recession-yet. After all, when clients suffer, agencies suffer too. Not so fast. At a recent panel event, Marketing the Marketers, hosted by Bluestripe Group and NDA, our panel of experts dug into a multitude of reasons why there’s a lot for agencies to be hopeful about.
Chaired by NDA’s Editor Justin Pearse, the panel featured Jerry Daykin, Global Head of Media at Jim Beam, Hannah Baker, Head of Marketing for Wavemaker U.K., Rhiannon Murphy, Head of Activation at the7stars, and Seb Joseph, Senior News Editor at Digiday.
For starters, the state of the economy isn’t as diametrically opposed to advertising as the headlines suggest. Some downturns feed on themselves as cash-strapped households reign in on spending. Today’s big economies suffer from few such issues. In fact, the spending power of households looks strong. The same goes for companies. Profitability has held up well for many of them so far into this downturn, which bodes well for agencies. Remember, ad spending tends to be driven by corporate profitability.
“The underlying drivers of advertising are still strong — at least for now,” said Joseph. “Yes, the macro-economic environment is uncertain but nowhere near as much as the structural headwinds the industry is braced for.”
Look at the emergence of multi-dimensional companies, for example. What were once FMCG businesses are now also ecommerce ones — such are the pressures on the CEOs there to tap into the productivity advantages ecommerce affords. That’s certainly the case at Jim Beam, where marketers have been keen to turn to the experts at their agency for guidance.
“We’re on a journey to drive more sales from direct-to-consumer channels, which is a very different business model to the one the company has been built on,” said Daykin. “Our agency works with a bunch of companies who only sell direct to consumers, which is an area of expertise and innovation that we can tap into.”
If anything, the pandemic and the cacophony of opportunities and challenges it has kicked up over the last three years have helped cement a lot of relationships between advertisers and agencies — at least until the next mediapalooza that is. But for now, at least, the always-capricious dynamic of both groups seems to be a lot more harmonious these days. It’s not without its issues, of course. Price squeezes to be a big bugbear. Still, there seems to be more of an understanding among agencies as to what they need to do to mitigate (to some degree) at least some of the more dysfunctional aspects of running companies that often lament the lack of time or enough time as well as the right client incentives to innovate.
“So last summer it became clear that the cost of living crisis was only going to become more challenging for our clients to navigate, so to keep pace with the rapidly evolving situation, we created a quarterly tracker, whereby we went out and spoke to UK consumers — across all sectors where we had strong client relationships — about what they wanted from brands,” said Wavemaker’s Baker. “We’re benchmarking that data and in-turn all those insights are being fed back into every single conversation we’re having with clients as well as being used to inform how we evolve our products.”
In other words, it’s not just enough for agencies to say they’re different, they need to have a distinct view of the world their clients operate in. Clearly this is still a work in progress. Every agency talks about their inclusive approach to planning and buying media now. Not as many are able to clearly articulate why that’s good for their clients’ business. The same goes for sustainability, which is why the7Stars’ Murphy explained why the agency isn’t rushing into it. On the contrary, it’s taken a more measured approach than some of its contemporaries have done.
“We are using a carbon calculator across the agency but it’s still something that’s in its infancy, ” she continued.
Like many other agencies, the7stars is trying to figure out what its culture — and therefore service offering — looks like in the wake of the pandemic. Or to be more precise, the impact that crisis had on how the agency delivers work for clients.
As Murphy explained: “We were one of the first agencies [in London] to be back in the office, and I think the collaboration we were able to foster across the business on the back of that decision has helped get us to a place where we’re better equipped to survive through these challenging times.”
To be clear, agencies aren’t out of the woods yet. Sure, the numbers they post for organic revenue growth look good, but the overall net revenue growth numbers are more mixed across the holding groups. And chances are it will still be this way for a while — or at least until these the holding groups can figure out a way to ensure more money flows through trading deals they control, not ad tech vendors or platforms.
It was never that the agency model was dead. It just needed to reinvent itself.